Does your organization structure organize your business?

If you ask most managers if their enterprise organizes the business, they will answer “yes”. However, if you ask them to described how the business in organized they will say that the business is organized into departments, functions, regions, etc. But, is this organizing the business?

Look up the definition of business enterprise. You will likely find that the business is “the activity of providing goods and services”. When you organize your business, do you organize “the activity of providing goods and services”?

20^th century organization theories organize people and responsibilities

20^th century business organization theories provide all kinds of ways to organize people, regions, responsibilities, etc. but they do not organize the business. Instead, they contrive different kinds of organization structures that are laid over the business. The organization structure organizes the enterprise, not the business. If the organization structure organized the business, the organization structure would change with business change. The business changes, while the enterprise organization structure is rigid, requiring periodic reorganizations and change management projects to align the enterprise structure closer to the actual current business.

The enterprise organization structure is the fatal error of 20^th century enterprise management. Once an enterprise organization structure is laid over the business, the business can never be organized or managed. Additional separate structures are laid over the business for corporate plans, business processes, cost and financial accounts, performance management, etc to plan, direct, control, and report the enterprise.

Organize the activity of providing goods and services

So take another look at your business as “the activity of providing goods and services”. How can you organize your business, so that the organization changes as the business changes? The definition shows that the business has two parts:

• The activity, which is the actions or performance of the business
• The goods and services, which are the outputs or results from the business

When we organize the activity, we organize people and the processes, methods, systems, information, and other tools that they use. In effect, we organize the capital that we invest in and utiilize in business performance to provide goods and services.

When we organize goods and services, we organize the economic outputs or results produced by the business. The business produces many results in order to provide goods and services.

In order to organize “the activity of providing goods and services”, we must organize business performance in the specific capital utilized as solutions to produce business results. Business performance manages each capital solution utilized to produce each output result.

Organize the business so that the business can be planned, measured, and reported

When we organize the capital used in business activity, we organize the capital solutions that we have invested and developed. Costs arise from consuming or utilizing capital in business activity, so we have organized our costs.

When we organize goods and services and other results, we organize the things we want to produce and sell to earn revenues and profits. These goods and services must be of high quality and provide value to customers. Each result has a customer that must be willing to pay a value to receive the result. Therefore, when we organize our economic output in results we have organized our quality and value.

When we organize business performance we know the performance costs incurred in the operation or amortization of each capital solution. We also know the value of each result produced by utilizing the solution. The  performance costs are properly charged against the value of the result produced to give a result value-added in the value of the volume of results produced less the performance costs incurred in producing the results.
This is just the start of what we can do. However, we cannot do any of it until we organize the business. 21^st century business management defines the business more precisely as “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. Results are organized in the result structure to manage the chains of economic outputs of value and quality that must be produced across the business for success. Capital solutions invested in the business are organized in the capital structure to manage investment cost amortization, the solutiion qualifications to produce results, and the result value-added by each solution to determine the return on the solution investment and the capital worth (today called asset value) of each solution. Business performance is organized in performance domains, where a specific capital solution is utilized to produce a specific result to manage performance costs and effectiveness.

Once the business is organized in the current business structure, the strategic business structure can be planned, result goals and performance expectations can be planned by month from the current to strategic business, and the business can be managed month by month to know actual performance cost, strategic result value created, and result value-added giving the profit results.

The fundamental problem of 20^th century enterprise, the failure to organize the business

The generally-accepted definition of the enterprise business is “the activity of providing goods and services“. Therefore, the activity of providing goods and services must be organized in order to organize the business. However, 20^th century organization theories organize “the enterprise” into organization units, positions, functions, reporting relationships, etc. to produce a contrived “enterprise organization structure” that is laid over the business. The organization structure is the fatal error of 20^th century management. Once an organization structure is laid over the business, the business can never be managed.

The business must change continually, while the “enterprise organization structure” remains rigid. The rigid organization structure hampers business change, creates change management problems, and eventually creates pressure for reorganization to contrive a new “enterprise organization structure” that is aligned closer to the actual business. If the business was organized, the organization would change with business change.

The solution is to organize the business for 21^st century management

The only way to manage the business properly is to organize the activity of providing goods and services into a business structure. The business activity is organized into capital invested in the business defined as specific solutions that are utilized in business performance. The business goods and services are organized as specific results that are produced by utilizing specific capital solutions in business activity or performance. The organized results to be produced across the business and the organized capital invested in solutions are combined to organize the business, by implementing specific solutions in performance domains to be utilized to produce specific results. The cost-effectiveness of each solution utilized is managed against the value-quality of the result produced.

By organizing the business, instead of the enterprise, the business itself is used as one structure to integrate enterprise organization and management. Actual business data is captured on the amounts and return on capital invested in the business, capital implemented to produce results to know all costs incurred by the business, results produced by the business to know the value created and quality of business outputs, and performance of the business to know the value-added across result chains leading to business profits. The business is planned in the strategic business structure. The business is directed, controlled, accounted for, reported, and governed against progress from the current to strategic business structure. Complete business data, not captured today, is utilized by management to reduce costs to essential capital, maximize the value and quality of results, ensure customer value and quality, and manage profits and shareholder value.

20^th century theories organize the enterprise and not the business, dooming the enterprise to problems

Many organization theories and methods were developed throughout the 20^th century promoting different ways to organize the enterprise. Organizing and reorganizing the enterprise became big business for management authors and consultants. The problem is that once the enterprise organization structure is implemented over the business, the enterprise is doomed to unsolvable 20^th century problems, for the following reasons:

• The enterprise organization structure is laid over the business creating the unsolvable reorganization problem
• The enterprise business, the activity of providing goods and services, has never been organized, preventing the business from being managed
• The enterprise must be managed through contrived accounts, processes, systems, architectures, functions, etc that also are laid over the business
• There is continual conflict between the ever changing business and rigid overlaid structures producing the unsolvable 20^th century management problems
• Each added structure incurs high costs and wastes high-worth capital in the human, IT infrastructure, and other capital required to administer the structure

The enterprise organization structure is the foundation for unsolvable 20^th century problems with reorganizations, inaccurate accounts, corporate governance, unknown value creation, intangible assets, unknown costs, unknown capital worth and benefits of investments, capital development management, outsourcing, alignment, collaboration and on and on. Each structure defines the enterprise differently and requires an information system for processing, creating enormous information complexity and unnecessary IT overheads, while not recording actual business data or reporting actual business management information.

20^th century enterprise management problems must be eliminated by organizing and managing the business

20^th century enterprise problems can never be solved by laying new or improved structures over the business. The problems exist because the enterprise business, the activity of providing goods and services, has never been organized. Therefore, the solution is to organize the business into current and strategic business structures and use the business structures to integrate business planning, direction, control, and reporting. One complete and accurate set of business data is captured and one set of consistent management information is reported on the actual business. All information in or leaving the business is related to a business entity in one official Business Information Base. The general ledger system and a relational data base management system are used to manage the business. All structures laid over the business and the costly information system processing to manage today’s overlaid structures are abolished.

The accepted definition of business is the “Activity of providing Goods and Services”

The generally accepted definition of business in on-line dictionaries is “the activity of providing goods and services”. If we start from this definition, we see that the business actually has two components:

1. “The activity of providing”, which is the action of business performance in the utilization of human and other capital
2. “The goods and services provided”, which are the outputs or business results produced from performance that can be counted and measured

So in order to manage the business, “the activity of providing” and “the goods and services provided” must be managed.

“Activity of providing” is the action of business performance in the utilization of capital invested in the business

“The activity of providing” is the business performance that utilizes capital. People perform using such business solutions as business processes, systems, knowledge, equipment, supplies, plans, tactics, and information. The people are human capital that are developed and paid by the business. People use business performance solutions provided by capital investments in the business. So, business performance utilizes human and other capital invested in the business.

The capital must be organized and managed as business performance solutions that can be utilized by people. The utilization of specific solutions to produce specific results can be explained through human knowledge solutions. The most important capital is human capital, but other capital must be managed properly to utilize capital available, to capture performance costs incurred in utilizing the capital, and to determine the returns on capital investments.

Capital utilized in the business includes all tangible and intangible assets. We need to break down the capital into specific business performance solutions that can be used to produce specific business results. Then we can know what capital we are developing and utilizing and the costs incurred. Intellectual, business, and management capital can be identified as specific business solutions, instead of being labeled as “intangible assets”.

“The Goods and Services provided” are examples of the economic output results produced that contain the value created by the business

“The goods and services provided” are examples of the economic outputs provided by the utilization of capital in business performance. Every time a person utilizes performance solutions and performs, the objective should be to produce an economic output of value to the business. These economic outputs are business results. A business result can be anything that management wants people to produce through business performance. All human capital in the business must produce results from their performance, so results can be defined across the complete business.

Results are specific identifiable outcomes that can be counted and measured in some way. Results include components, products, services, sales, revenues, etc in the main business line. Results include new or improved performance solutions developed that are implemented into the solution such as a new process, developed human capital, an approved strategy, a repaired machine, or a management report.

Every result in the business must have an internal or external customer that finds the result to be valuable and wants it produced. The value of the result should be greater than the performance cost to produce the result. If not, why is the result produced? Results must be organized and managed as a set of results to know the value created by the business. Results also embody the quality produced by the business. Results must be managed to manage quality in the business.

The business can be defined as “the utilization of capital in performance to produce value in results”

The objective of any business must be to produce results. Normally, there are strategic results that must be produced to make the business viable. In order to produce results the business must invest in humans, facilities, business processes and systems, management intelligence, and other capital. Specific items of capital, defined as business performance solutions are utilized to produce specific business results. Therefore, we can logically define the business as “the utilization of capital in performance to produce value in results”.

Organization structures are contrived, approved by management, and laid over the business

Whenever a business needs to be organized, an enterprise organization structure sets entities to manage like units, functions, and positions. The business is not organized, so the rigid organization is further removed with each business change, eventually requiring “reorganization” to align another structure closer to the business.

The organization structure is the “fatal error” in 20^th Century organization and management

Once an enterprise organization structure is overlaid on the business, the business can never be managed. The enterprise is forced to use enterprise management structures like strategy maps, business processes, charts of accounts, salary scales, scorecards, etc. that define additional entities to manage and also are overlaid on the business.

The business organization is a professionally-managed performance solution

The business is the activity of providing goods and services. The business activity employs capital, so the capital must be organized. The business goods and services are economic outputs produced by the business, so the economic outputs must be organized. Result Performance Management is the conventional method to organize the business for 21^st century management. Result Performance Management organizes capital as performance solutions and economic outputs as results in a business organization structure.

The business organization structure is business capital that must be professionally managed like all other capital. The business organization of results and the deployment of qualified and approved human and other capital to produce results is a performance solution, similar to a business process, human capability, or facility equipment.

The business organization is not a management prerogative

Management decides on the strategic results to be produced by the business and the capital investments in performance solutions needed to produce the results, as part of the enterprise strategy. Goals are set for results to be produced and expectations are set for performance solutions for each time period on the way to the strategic horizon.

The business organization structure is used for direct business management and good corporate governance

The business organization is one integrated business structure used for all planning, control, record-keeping, reporting, and management. The business is simplified to only the basic entities and common definitions for direct management of results and capital utilized. All overlaid structures are removed for transparent business management.

21^st Century Management eliminates 20^th century problems

Result Performance Management eliminates the reorganization problem and other costly 20^th century problems. Slash costs, simplify business management, and boost competitive advantage through Result Performance Management, the conventional method for 21^st century management.